kotak
18th August 2020
The Manager Corporate Relationship, BSE Limited, 1st Floor, New Trading Ring, Rotunda Buliding, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai 400 001.
Security Code: 500247
Dear Sir,
Kotak Mahindra Bank
The Manager National Stock Exchange of India Ltd. Exchange Plaza, 5th Floor, Plot No.C/1, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051.
Security Code: KOT AKBANK
Please find enclosed herewith chairman speech and the presentation made to the shareholders at the Thirty Fifth Annual General Meeting (AGM) of the Bank held on Tuesday, 18th August 2020 through Video Conferencing I Other Audio Visual Means.
Kindly acknowledge receipt of the same.
Thanking you,
Yours faithfully, Kotak Mahindra Bank Limited
Kotak Mahindra Bank Ltd. CIN: L65110MH1 985PLC03B137
Registered OHice:
27 BKC, C 27, G Block, Sandra Kurla Complex, Sandra (E), Mumbai 1100051, Maharasht ra, India.
T +91 22 61 660000 www.kotak.com
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By Prakash Apte
Ladies and gentlemen, During last year, the global geopolitical and economic landscape faced various challenges, including a global trade slowdown led by a deterioration in US-China trade relations & Brexit finally culminating in an escalation of the COVID-19 pandemic in the last quarter. The Indian economy as well had slowed down to a growth of 4.2% for FY 19-20, ahead of the Covid-19 impact hitting Indian shores by the end of the year. This slowdown was combined with deterioration in investment in real terms, at 33% of GDP in FY20, compared to 35% in the previous year. Consumption spending saw a sharp moderation as well, with FY20 real growth at 5.3%, against a medium-term average of about 7.0%. In this challenging context, our Group’s results for the financial year demonstrated our strengths and the effectiveness of our strategy. Our sound risk management, governance, balance sheet strength, depth of managerial capabilities and strong customer focus led us to conclude another successful financial year. For the year ended 31st March 2020, the Group’s consolidated profit after tax was Rs. 8,593 crore, which was 19% higher than the previous year. At a standalone level, the Bank reported a profit after tax of Rs. 5,947 crore, growing by 22% over the previous year. In the standalone Bank balance sheet, our CASA deposits grew by 24% and savings deposits crossed Rs. 1 lakh crore in FY20. Our low-cost, granular, liability franchise remains one of our bank’s strengths, and a key element of our strategy. On the lending side, our advances grew by about 7%, closing at Rs. 219,748 crore. This relatively lower growth in advances reflects our conscious decision to slow down lending, recognizing the headwinds in the economy. We continued our focus on asset quality and the Bank’s Gross NPAs as at March 31st 2020 stood at 2.25% of gross advances. The Bank continues to monitor asset quality closely, and has made prudent provisions. Thus, our Net NPA as at March 31st stood at 0.71% of net advances. Further, we also made a provision of Rs. 650 crore towards potential impact of COVID on asset quality. The Group’s subsidiaries have boon an important driver of our consolidated results and they contributed over 30% to the Group’s consolidated profit after tax for the year FY20. All subsidiaries are 100% beneficially owned by the Bank, and many of these subsidiaries, including insurance, broking and investment banking, asset management and advisory, are low-capital and non-credit-risk taking businesses.
Our Bank was recognized as the ‘Best Mid-Size Bank’ at Business Today- Money Today Financial Awards 2018-19. It was also recognized as “India’s Best Bank” at the
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Euromoney Awards for Excellence 2018 and as “Best Domestic Bank, India” at the Asiamoney Best Bank Awards 2019.
Apart from this, as in previous years, our Bank as well as other companies in the group, have won a number of significant awards for excellence in Products & Services and Information Technology.
The COVID-19 challenge this year
As all of us are aware, this year has begun with the serious and unprecedented challenge posed by the Covid-19 pandemic, which is a battle of both science and economics. The immediate risk is the risk to lives, and governments around the world introduced a variety of measures, including lockdowns, to contain the spread of the virus. In India, a nationwide lockdown was enforced at the end of March. However, while protecting lives, the lockdown also had a huge impact on livelihoods and the economy. Even after the central government has delegated the decisions to States, the pandemic has forced many ground level restrictions, impacting the integrated functioning of the domestic economy. Most economists are now expecting negative GDP growth during the current financial year. Despite the slowing of economic activity, inflation has remained relatively high in recent months, with CPI inflation at 6.23% in June and 6.93% in July, against an average of 4.8% for FY 2020. The slowing economy prompted the Indian government to announce a slew of measures to boost economic activity such as cash transfers to women and farmers, provision of food and gas cylinders to the poor, and liquidity support to MSMEs backed by a government credit guarantee. Additionally, in an effort to alleviate the tightening of financial conditions, the Reserve Bank of India has taken several measures to keep liquidity flowing into the system, such as repo rate and CRR cuts, increased limits for overnight borrowing under the MSF, and Targeted Long-term Repo Operations for investments in corporate debt. The government’s stimulus measures are expected to have a significant fiscal impact, with India’s consolidated Centre plus State fiscal deficit being projected by economists at 11 – 12% of GDP. On the other hand, India’s external account seems to be under control. While export growth has been slow owing to weak global demand, imports have contracted at a sharper pace owing to the fall in oil prices and weak domestic demand. The current account registered a surplus of 0.1% in Q4FY20, and this situation is expected to continue through FY2021. Capital markets have bounced back significantly after culmination of the nationwide lockdown. Net FPI inflows into India this financial year have amounted to about USD 5 billion so far, and the stock market Indices on August 14 were about 34% above their level at the start of the financial year. The financial services industry, which underpins all economic activity, has had to adapt quickly to the situation this year. Till August 15 this year, the Indian banking and financial services sector alone has raised primary equity capital of nearly 70,000 crore. Your bank too has taken steps to adapt to the changing conditions and our focus is on operations and business continuity, customer service, employee safety, shift from
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physical to digital, capital preservation, liquidity management, cost rationalization and strengthening of collection infrastructure. In May 2020, your Bank successfully completed a Qualified Institutional Placement (QIP) of equity shares, being among the first entities in India to raise capital during the pandemic. The Bank raised Rs. 7,442.50 crore by issuing 6.5 crore equity shares. With an all-round need to rationalize costs and preserve capital, in April 2020, the group’s leadership team unanimously and voluntarily opted to take a 15% cut in compensation for the financial year 2020-21. Management staff earning over Rs 25 lakh per annum also took a cut of 10%. Pursuant to approval from the Reserve Bank of India on 18th February 2020, the promoters’ shareholding in the Bank was required to be reduced within a period of 6 months. The Bank has achieved the said requirement within the time period stipulated by the RBI.
Conclusion
It has become increasingly clear with time that COVID will have long-lasting effects on nearly all aspects of our lives. In terms of the economy, while there seems to be a recovery in some areas, it will be some time before we get back to pre-COVID levels.
Kotak as a Group has gone through various external challenges in the past, and has emerged stronger from each. This time too, the Group has retained its firm footing and is looking to strengthen itself in these uncertain times, while keeping an eye on opportunities ahead. Grounded in our prudent approach to lending and led with a clear vision of being a world-class financial services conglomerate, Kotak is determined to Persevere, Pioneer and Prosper.
With that, on behalf of Board of Directors, I would like to thank all our customers, shareholders, regulators, and the Central and State Governments for the continued encouragement, sustained support, timely guidance and generous advice that we have benefited from.
Thank you.
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e kotak Persevere.
Pioneer. Prosper.
Welcome to the Never Normal world
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COVID changes every part of our lives
Opportunities in this new world
Working from home and social distancing: a new way of life New balance between the physical and digital worlds Short-term uncertainty around job security, salary levels, sustainability of
certain businesses and industries
Redefinition of the rural-urban divide as we understand it Geography is history: opportunity for India to be the office of the world Business models will change – only the quickest to evolve and adapt will
survive and prosper
A new imperative
Society needs to focus on health, education, and the environment Need to ensure that the important does not get lost in the urgent
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Community support initiatives
Since March 2020, Kotak has donated to the PM Cares Fund and the Maharashtra CM Relief – COVID-19 Fund
Programme: Protecting the Protector
• Provided masks, face shield, sneeze shield and PPE kits to healthcare professionals and workers, social workers, police
Programme: Food, Dry-Ration Kit, Health, Hygiene, Sanitation
• Provided cooked meals to migrant labourers, daily wage earners
• Provided dry ration kits in tribal/rural areas, slum dwellers
• Funded development of hygiene and sanitization in various KrishiiMandis / APMCs
Programme: Campaign Gratitude
• The Bank matches funds raised by children under this programme
• Supporting 3 NGOs - Concern India Foundation, Pride India & Sneha - in their COVID-19 relief work
• Aims to create CSR empathy in children and to create a CSR movement pan-India
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Business initiatives
Priorities at Kotak have been employee safety and continuity of customer service
Branches and large offices operating, following all safety protocols
Employees encouraged to work from home
Uninterrupted service and customer support via digital channels
Continued serving customer needs for opening new accounts throughout Q4FY20 and Q1FY21
Business continuity
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Business impact
Deposits business strong, despite savings interest rate cuts
New loan origination and collections impacted by slowdown
It could also result in a rise in credit costs
Tightened credit policies, and actively monitoring the loan portfolio
Leveraging tele-calling and digital payment channels to improve collections
Leveraging technology, maintaining focus on costs and productivity
Subsidiaries continued to perform well
Many of them in non-credit risk, customer franchise businesses
Impact on business
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Our strategy (1/2)
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∞ To be amongst the most trusted financial services conglomerates in India
∞ Enhance customer experience backed by a wide spectrum of products
∞ Cost efficient, convenient delivery channels including digital and technological initiatives
∞ Strengthen data, analytics capability for higher cross-sell
Enhance customer experience and trust
∞ Bank to continue to be the main customer acquisition engine,
∞ Leverage customer growth by cross-selling products and services offered by the Group
∞ Continuous growth in composition of low-risk income from AMC, Insurance, Capital Markets
∞ Measured, value-focused growth of branch network and digital banking initiatives
∞ Comprehensive digital strategy to deepen customer relationships
∞ Actively seek growth opportunities, both organic and inorganic, to expand market share,access new geography, customer segment or acquire new capabilities
Expand market share in all segments of financial services in India
Our strategy (2/2)
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∞ Continue to focus on the recruitment and cultivation of a high-quality, professional andempowered workforce
Attract, retain and build a team of talented, engaged and motivated employees
∞ Continually improve risk management, risk evaluation, rating methodology, and monitoringand control to maintain high quality asset portfolio
∞ Provide risk adjusted returns and continue to identify, assess & manage risks well in timeand allocate capital amongst businesses appropriately
Disciplined risk management leading to strong asset quality
∞ Expand retail banking business by growing distribution network, optimizing digital channels andoffering differentiated products
∞ Increase retail deposit base and current deposits
∞ Expand current deposits by providing lending solutions and range of customized products
Continuously expand access to low cost liabilities
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Kotak Mahindra BankBank & Parent Company
Car Finance & other lending
∞ Kotak Mahindra Prime
Life Insurance
∞ Kotak Mahindra Life Insurance
Advisory Services(Middle East)
∞ Kotak Mahindra Financial Services Ltd.
Investments & Lending
∞ Kotak Mahindra Investments Ltd.
General Insurance
∞ Kotak Mahindra General Insurance
Advisory Services & Investments
(Mauritius)
∞ Kotak Mahindra International
Alternate Assets
∞ Kotak Investment Advisors
Mutual Fund
∞ Kotak Mahindra AMC,∞ Trustee Company
Distribution of Financial Services
(UK)
∞ Kotak Mahindra UK
Investment Banking
∞ Kotak Mahindra Capital Company
Pension Fund
∞ Kotak Mahindra Pension Fund
Asset Management (Singapore)
∞ Kotak Mahindra Asset Management (Singapore)
Stock & Commodity Broking,
Distribution
∞ Kotak Securities
TrusteeshipServices
∞ Kotak TrusteeshipServices
Broker / Dealer (USA)
∞ Kotak Mahindra, Inc.
∞ Kotak Infrastructure Debt Fund
Finance for infra projects
Bankingcorrespondent
∞ BSS Microfinance
Integrated and Diversified Financial Services
International / overseas branches
∞ Kotak Mahindra Bank (DIFC Branch)
∞ Kotak Mahindra Bank (GIFT City Branch)
Strong balance sheet
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Mar-20 Jun-20
Capital and Reserves & Surplus (` cr.)
Consolidated 67,134 76,443
Standalone 49,015 57,709
Tier – 1 Capital AdequacyRatio (%) *
Consolidated 19.2% 22.5%
Standalone 17.3% 21.1%
QIP in May 2020 raised ` 7,442 crore
The additional capital will support the bank in dealing with contingencies or financing business opportunities
0.71% Net NPA (% of net advances)
0.04% SMA2 (% of net advances)
69%Provision coverage ratio (excluding standard and COVID-19 provisions)
Other key balance sheet ratiosBank standalone, as on 31st March 2020
2.25% Gross NPA (% of gross advances)
* As per Basel III, including unaudited profits
Low cost, granular, stable deposit franchise
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Bank standalone deposits metrics
Mar-19 Mar-20 Jun-20
Total deposits (` cr.) 225,880 262,821 261,524
SA deposits (` cr.) 79,685 104,609 109,754
TDs below `1 cr. (` cr.) 55,279 63,549 67,643
CASA ratio 52.5% 56.2% 56.7%
CASA & TDs below `5 cras % of total deposits 81% 86% 90%
Cost of SA * 5.66% 5.23% 4.22%
* For Q4 FY19, Q4FY20 and Q1FY21 respectively
Cautious approach to lending
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118,665136,082
169,718
205,695219,748
203,998
Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Jun-20
The Bank slowed down lending even pre-COVID
Bank advances grew by 7% YoY in Mar-20
Looking at lending through three filters:
Sectors that we are comfortable with
Cautious about companies with high fixed operating costs
Cautious about companies with high leverage
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Bank standalone advances (` cr.)
Implemented the Government’s ECLG Scheme
Focus on digital and technology
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New customer acquisition continued even through the lockdown
First bank to launch account opening via Video KYC
End-to-end account opening with zero in-person contact
Kotak 811
Digital platforms
During Q1FY21, ~97% of RDs, ~87% of FDs sourced digitally
During Q1FY21, mobile banking growth volume grew by 61% YoY
~0.95 mn service requests through Keya for the month of March 2020
Video KYC
Focus on digital and technology
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119%growth YoY*
in Mobile Total ADV
76%growth YoY*
in Online Total ADV
Kotak Securities
*Q4FY20 v/s Q4FY19
Kotak Life Insurance
Individual Policies sourced in Q4FY20 through Genie
Business (sales in Q4FY20) through Genie for BANCA channel
94%
96%
Applications shared via digital medium in Q4FY20 (On-board advisors provided with Mobility solution digitally)
99.9%
Active Life Advisors till YTD Mar 20 using the Smart Sell app96%
Increasing its digital footprint within the bank, more than 60%of KGI business in retail liabilities was sourced digitally
Kotak General Insurance
Strong pool of leadership to support future growth
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Dipak GuptaJt. MD
28 years
Compliance, IT, HR, Marketing, Customer
Experience, Audit, Vigilance
Gaurang ShahWTD
23 years
KVS ManianWTD
25 years
Corporate, Institutional Equities, Investment Bank &
Wealth
D Kannan
29 years
Commercial Banking
Shanti Ekambaram
29 years
Consumer Banking
Narayan SA
28 years
Treasury, Car Finance & Retail
Brokerage
Jaideep Hansraj
26 years
Retail Brokerage
Virat Diwanji
26 years
Retail Liabilities & Branch Banking
Venkattu Srinivasan
26 years
Asset Reconstruction & Structured Credit
Jaimin Bhatt
25 years
Group CFO
Nilesh Shah
5 years
Asset Management
G Murlidhar
19 years
Insurance
56 members of the Kotak Leadership Team (incl. above and MD & CEO) with an average tenure of 19+ years with the Group
Credit, ARD, Asset Mgmt., Alternate
Assets, Insurance, International Business
Pan-India bank distribution (Mar-20)
Branches 1,600* [No. / %]
2,519
No of ATMs
Branch Classification
North
485 / 30%
West
493 / 31%East
122 / 8%
South500 / 31%
3
11
102
66
46
2
155
329
7
87
109
180
90
34
429
86
22
90
22
10
71
1
5
1
1
19
* Does not include branches in DIFC, Dubai & GIFT city, Gujarat 15
Wide distribution of group businesses
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1,3331,600
79100227
245
1,209
1,315
79
86818 329
Mar-16 Mar-20
Bank Branches
Car Finance
Life Insurance
Securities *
Mutual Fund
General Insurance
BSS Microfinance
* branches, franchises and referral coordinators
2,935
3,693
Financial Highlights
Standalone highlights
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FY19 FY20 Q1FY21
Pre-provision operating profit (` cr.) 8,348 10,021 2,624
Profit after tax (` cr.) 4,865 5,947 1,244
Loans (` cr.) 205,695 219,748 203,998
CASA ratio 52.5% 56.2% 56.7%
Net interest margin * 4.31% 4.62% 4.40%
Net NPA 0.75% 0.71% 0.87%
CAR # 17.5% 17.9% 21.7%
Tier I # 16.9% 17.3% 21.1%
RoA (not annualized) 1.69% 1.87% 0.34%
* Doesn’t include dividend income and interest on income-tax refund# As per Basel III. For Q1FY21, including unaudited profits. Excluding profits CAR: 21.2%, Tier I: 20.6%
Consolidated highlights
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FY19 FY20 Q1FY21
Profit after tax (` cr.) 7,204 8,593 1,853
Total Assets (` cr.) 395,171 443,173 458,618
NIM * 4.24% 4.59% 4.44%
Net NPA 0.70% 0.70% 0.89%
Capital and Reserves (` cr.) 58,280 67,134 76,443
CAR # 17.9% 19.8% 23.0%
Tier I # 17.4% 19.2% 22.5%
Book value per equity share (`) 302.7 348.3 383.8
* Doesn’t include dividend income and interest on income-tax refund# As per Basel III. For Q1FY21, including unaudited profits. Excluding profits CAR: 22.5%, Tier I: 21.9%Financial results have been prepared under Indian Generally Accepted Accounting Principles
Consolidated PAT
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` cr FY19 FY20 Q1FY21Kotak Mahindra Bank 4,865 5,947 1,244
Kotak Mahindra Prime 599 673 68
Kotak Mahindra Investments 207 270 43
Kotak Securities 452 550 169
Kotak Mahindra Capital 63 79 6
Kotak Life Insurance 507 608 161
Kotak AMC and TC 255 337 71
International subsidiaries 148 119 54
Others 67 78 35
Total 7,163 8,661 1,851Affiliates, others and inter-company adjustments 41 (68) 2
Consolidated PAT 7,204 8,593 1,853
Consolidated Capital & Reserves and Surplus
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` cr Mar-2019 Mar-2020 Jun-2020Kotak Mahindra Bank 42,898 49,015 57,709Kotak Mahindra Prime 5,416 6,088 6,157Kotak Mahindra Investments 1,590 1,860 1,902Kotak Securities 3,979 4,529 4,698Kotak Mahindra Capital Company 572 622 628Kotak Mahindra Life Insurance Co 2,745 3,354 3,515Kotak Mahindra AMC & Trustee Co 583 886 957Kotak Infrastructure Debt Fund 349 383 391Kotak Mahindra General Insurance Co 108 165 177International subsidiaries 1,009 1,230 1,281Kotak Investment Advisors 355 365 372Other entities 213 275 283Total 59,817 68,772 78,070Add: Associates 942 942 954Less: Minority, inter-company and other adjustments (2,479) (2,580) (2,581)Consolidated Capital & Reserves and Surplus 58,280 67,134 76,443
Assets Under Management and Relationship Value
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42%
28%
10%
13%6%
1%109,443
73,271
24,627
34,223
15,368
2,849
Domestic MF Debt
Domestic MF Equity
Offshore Funds
Insurance
Alternate Assets
PMS & Others
42%
26%
10%
14%
7%
1%94,436
59,187
22,410
32,080
15,176
2,589
AUM – 31st March 2020 (` cr.) AUM – 30th June 2020 (` cr.)
Relationship Value of Wealth + Priority + Investment Advisory as on 30th Jun, 2020 ~ ` 282,000 cr.
(Total: ` 225,878 cr.) (Total: ` 259,781 cr.)
Kotak uniqueness and strengths
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Integrated financial services conglomerate
with a diversified business model
Ability to identify and capitalize on opportunities
Healthy asset quality & prudent risk
managementcapabilities
Strong brand and leadership in various businesses
Digital & technological capabilities
Strong governance culture and an experienced management team
Thank you